DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
CHIEF FINANCIAL OFFICER
PERFORMANCE AND ACCOUNTABILITY REPORT
2008
Table of Contents
2 Message from the Director
3 Message from the CFO
4 Highlights of the Year
6 Profile of the Bureau
10 Keeping the Greenback "Green"
13 Safety, Health and Environmental Management
16 Strategic Plan
18 FMFIA Plans and Accomplishments
23 Custody of Assets
25 Program Performance Measures
29 Management Discussion and Analysis
34 Independent Auditors' Report
35 Financial Statements
38 Notes to Financial Statements
48 Management's Report on Internal Control Over Financial Reporting
49 Independent Auditors' Report on Internal Control Over Financial Reporting
50 Independent Auditors' Report on Compliance and Other Matters
2008 CFO Report
2
BEP Director Larry R. Felix
Message From The Director
The past year has been one of challenges and accomplishments for the
Bureau of Engraving and Printing. The year was marked by the successful
introduction of the redesigned $5 Federal Reserve note, start-up of new
printing presses in both the Washington, DC and Fort Worth, Texas facilities,
and delivery of the 2008 currency order on time and under budget. I would like
to express my appreciation to all the employees of the Bureau of Engraving and
Printing for their hard work and contribution toward making 2008 another very
successful year.
With the assistance of these dedicated employees, the Bureau made significant
progress in its multi-year effort to retool and retrofit its production processes. The first phase of this effort was successfully
completed this year as production began on two new intaglio press lines (two presses each), one line in
Washington, DC and one line in Fort Worth, Texas. This initiative will provide the Bureau with the ability to enhance
counterfeit deterrence and increase productivity.
In order to stay ahead of increasingly sophisticated counterfeiting threats, the Bureau continuously redesigns U.S.
currency. Because of emerging threats, the Bureau redesigned the $10, $20, and $50 notes over the last several years
incorporating enhanced security features. In 2008, the redesigned $5 note began circulating. Development of a redesigned
$100 note is in process and is expected to be approved for production in the 2009/2010 time frame.
The Bureau, in coordination with the Department of the Treasury, is actively working to improve the Nation's currency
to better serve the needs of Americans and others around the world, including the blind and visually impaired. To this
end, a study began in 2008 to assess improved methods for denominating currency for the blind and visually impaired.
This study will be released for public comment in 2009.
The environmental, health, and safety (EHS) strategic plan, established in 2007, institutionalized the Bureau's commitment
to protecting the environment and its employees. The fundamental objectives of reducing our environmental
impact and preventing injuries are the focal points of this endeavor. Mandatory EHS performance standards for all
Bureau employees are a key element of this plan.
The Bureau is resolutely committed to a strong, world-class environmental management program and has attained
certification by the International Organization for Standardization (ISO) 14001 for both the Washington, DC and Fort
Worth, Texas facilities. The ISO 14001 certification reinforces the Bureau's commitment to sound environmental
stewardship.
As part of this environmental commitment, constant attention is devoted to keeping the greenback "green". Because
the paper used to print currency is made of agricultural products (cotton and linen), it actually has a negative carbon
footprint. Improving our production process can also reduce our environmental impact. The Bureau's wiping solution
recycling system, a major capital investment initiated in 2008, is a good example. When complete, this system will
reduce the use of water in manufacturing by approximately 15 million gallons a year.
As the Bureau retools and optimizes its manufacturing processes, we must also invest in the employees who implement
these processes. Our efforts in 2008 to assess skill gaps throughout the organization will have a significant impact
on our use of the advanced technology integrated with our new manufacturing equipment, and business process
standardization and optimization efforts. As part of this effort, the Bureau has launched the Treasury Learning Management
System (TLMS), a system that provides employees with access to a wide variety of online training courses
and a comprehensive, web-based reference library.
The performance and financial data presented in this report is complete and accurate as outlined in guidance available
from the Office of Management and Budget. The Bureau regularly uses this financial and performance data for decision
making. Consequently, every effort is made to ensure its accuracy and reliability.
The many accomplishments of this year would not have been possible without the focused dedication of the Bureau's
employees. As we continue to redesign and print the Nation's currency to enhance counterfeit deterrence and facilitate
commerce, I am confident the Bureau's employees will carry on the tradition of excellence that is the hallmark of the
Bureau of Engraving and Printing.
Larry Felix
2008 CFO Report
3
BEP CFO Leonard R. Olijar
Message From The Chief Financial Officer
I am pleased to present the Bureau of Engraving and Printing's Chief
Financial Officer Performance and Accountability Report for 2008.
This report reflects a tradition of strong financial management; timely, accurate
financial reporting; and continual improvement at the Bureau. The
ongoing organizational emphasis on timeliness and reliability of financial
reporting has resulted in an unqualified audit opinion on the Bureau's financial
statements for the 24th consecutive year. Further, the Bureau is one of
only a very few government agencies that receive an opinion on management's
assertion of effective internal control over financial reporting based
on the criteria established in "Internal Control–Integrated Framework" issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission.
The financial statements and annual audit are important elements in the stewardship of the Bureau's revolving
fund. The annual audit and opinion on internal control over financial reporting help to ensure the integrity of the
revolving fund, as well as the reliability of financial data used for managerial decision-making.
In 2008, the Bureau delivered 7.7 billion currency notes to the Federal Reserve, resulting in revenue of $517
million and an excess of revenue over expenses of $1 million. While revenue and net results both declined significantly
from the previous year because of the smaller currency order, both were within planned parameters.
During the year, the Bureau continued to focus on improving productivity, reducing costs, and streamlining operations.
Overall program performance was favorable, and direct manufacturing costs for currency were below
established standards.
In 2008, the Bureau continued a $200 million multi-year recapitalization of its Washington, DC and Fort Worth,
Texas facilities. Successful implementation of new technology will improve productivity and provide needed
capabilities to produce increasingly more complex currency note designs. The Bureau also completed five-year
staffing and capital investment plans in 2008 to ensure that we are positioned to meet the current and future needs
of our customers.
Several other initiatives moved forward in 2008, including the Internet Payment Platform (IPP). The IPP is an
e-commerce system that enables online processing of purchase orders, invoices, and payment information over
the Internet. The Bureau also planned an investment in a new manufacturing application to integrate, consolidate
and enable analysis of data for the systems embedded in existing and new manufacturing equipment. This initiative
will provide an integrated platform to simplify and standardize the collection of data across the Bureau's
disparate systems, sensors and applications used in manufacturing.
Investments in equipment and technology must be accompanied by similar investments in our employees. Proficiency
in the use of all new equipment requires employees that are highly skilled and adaptable. As the Bureau
prepares for the future, we will continue to focus on our commitment to product quality, superior customer service,
and efficient stewardship of resources so that we can continue to effectively meet the needs of the American
public. The Bureau has positioned itself to meet these needs both from an operational and financial management
perspective. The Bureau has the financial resources necessary to invest in its employees to maintain a talented
workforce, and a well-disciplined capital investment strategy to enhance product quality, promote counterfeit
deterrence, and ensure the cost effectiveness of the manufacturing processes.
Leonard R. Olijar
2008 CFO Report
4
Highlights of the Year
In 2008, the Bureau of Engraving and Printing
continued to produce and deliver the highest
quality currency notes to the Federal Reserve
System and moved forward on its multi-year
program of currency redesign.
The Bureau also continued a multi-year, $200
million recapitalization of its currency production
processes to improve its manufacturing
efficiency and its capability to produce increasingly
complex currency designs. The first
phase of this effort was successfully completed
in 2008, as production began on two new intaglio
press lines (two presses each); one line in
Washington, DC, and one line in Fort Worth,
Texas. An additional press line is scheduled
to be installed in each facility in 2009. These
presses are the cornerstone of the Bureau's plan
for retooling currency production, which also
includes new currency processing equipment.
Treasurer of the United States, Anna E. Cabral explains
the features of the redesigned $5 note.
Federal Reserve Board Assistant Director Michael Lambert
spends the first $5 note.
Assistant Director Michael Lambert discusses the features of the redesigned $5
note during its unveiling at the Lincoln Cottage. Also present (from left to right):
Frank Milligan, Director of the Lincoln Cottage, Anna E. Cabral, Treasurer of the
United States, Michael Merritt, Deputy Assistant Director, U.S. Secret Service,
and Pamela Gardiner, Deputy Director of BEP.
2008 CFO Report
5
Highlights of the Year
Additional financial and operational highlights
for 2008 include:
* The redesigned $5 note began circulating on
March 13, 2008. The new note includes enhanced
counterfeit deterrent features and a
larger numeral on the back to assist the visually
impaired in denominating currency.
* The Bureau completed comprehensive skill
assessments of its employees that will enable
focused spending on identified training
needs and prepare the workforce for the
increasingly sophisticated technology integrated
into 21st century manufacturing processes.
* The Bureau ended 2008 at its lowest staffing
level since 1898. This can be partially
attributed to the operational realignment
over the past two years, which streamlined
operations, eliminated redundant functions,
and combined similar activities. Staffing has
also been reduced due to the introduction of
new technology and more efficient production
processes.
* The Bureau received the "John Henshaw
Award for Corporate Leadership in Safety"
from the SafetyXChange, an international
network of safety professionals. This award
is presented to those organizations that demonstrate
superior leadership in workplace
health and safety. This special recognition
is reflective of the Bureau's safety program,
which integrates comprehensive health and
safety measures into the Bureau's mission.
* In 2008, the Bureau received an unqualified
opinion on its financial statements for
the 24th consecutive year; and for the fourth
consecutive year, the Bureau received an unqualified
opinion on its internal control over
financial reporting.
* The Bureau's Western Currency Facility
in Fort Worth, Texas received the Golden
Achievement Award from the Fort Worth
Independent School District in recognition
of its participation in the "Adopt-a-School"
program and for its efforts to mentor high
school students.
* Initiatives to incorporate sophisticated information
technology into all operations
continued as the Bureau implemented the
Internet Payment Platform, which allows for
paperless e-commerce.
* An investment in a new manufacturing application
to integrate, consolidate, and enable
analysis of data from the systems embedded
in existing and new manufacturing
equipment was initiated. This will provide
an integrated platform to simplify and standardize
the collection of data across the Bureau's
disparate systems, sensors, and applications
used in manufacturing.
* The Bureau implemented the Treasury
Learning Management System. This is a
web-based system that provides all employees
easy and quick access to professional
development courses, online training, reference
books, and other resources.
Chart
(All Dollars in Millions) 2007 2008
Sales Revenue $578 $517
Capital Investment $37.7 $54.5
General and Admin. Costs $56.2 $60.3
Research and Development $14.0 $12.4
Total Assets $602.2 $608.8
Excess of Revenue over
Expenses $46.3 $0.6
Federal Reserve Notes
Delivered (Billions) 9.1 7.7
2008 CFO Report
6
Profile of the Bureau of Engraving and Printing
The Bureau of Engraving and Printing's mission
is to design and manufacture high quality
security documents that deter counterfeiting
and meet customer requirements for quality,
quantity, and performance.
The Bureau of Engraving and Printing began
printing currency in 1862. The Bureau operates
on the basis of authority conferred upon the
Secretary of the Treasury by 31 U.S.C. 321(a)
(4) to engrave and print currency and other security
documents. Operations are financed by
means of a revolving fund established in 1950
in accordance with Public Law 81-656. This
fund is reimbursed through product sales for
direct and indirect costs of operations, including
administrative expenses. In 1977, Public
Law 95-81 authorized the Bureau to include
an amount sufficient to fund capital investment
and to meet working capital requirements in
the prices charged for products, eliminating the
need for appropriations from Congress.
As the Bureau retools, the older presses
are being replaced. Once considered
state-of-the-art, the twenty-year old
presses in Washingon, DC are being replaced
with more productive, flexible, and
environmentally-friendly printing presses.
The new conveyor system attached to
the note packaging machine will package
currency more efficiently, while reducing
injuries caused by repetitive lifting.
The Bureau produces U.S. currency and other
security documents issued and used by the Federal
Government. Other activities at the Bureau
include engraving plates and dies; manufacturing
certain inks used to print security products;
purchasing materials, supplies, and equipment;
and storing and delivering products in accordance
with requirements of customers. The
Bureau also provides technical assistance and
advice to other Federal agencies in the design
and production of documents, which, because
of their innate value or other characteristics,
require counterfeit deterrence.
2008 CFO Report
7
Profile of the Bureau of Engraving and Printing
The Bureau reviews cash destruction and unfit currency operations
at Federal Reserve Banks and is responsible
for the accountability and destruction of
internally generated security waste products.
As a free service to the public, the Bureau also
processes claims for the redemption of mutilated
paper currency.
The Bureau occupies three government-owned
facilities. The Main and Annex buildings, located
in Washington, DC, produce Federal
Reserve notes and other security products.
The Western Currency Facility, located in
Fort Worth, Texas, produces Federal Reserve
notes. The Main Building became operational
in 1914, the Annex Building in 1938, and the
Western Currency Facility began operations in
1991. The Western Currency Facility was constructed
to provide increased production capacity,
reduce transportation costs, and enhance
the Nation's emergency preparedness.
In addition to housing production facilities,
free tours of currency operations are offered to
the general public in both Washington, DC and
Fort Worth, Texas. The tours include Visitor
Centers with currency manufacturing displays,
interactive kiosks, and other information about
the history of our Nation's currency. The Visitor
Centers also sell uncut sheets of currency,
engravings, and other collectibles. In addition
to the on-site sales centers, these items are
available through mail order and the Bureau's
Internet site: www.moneyfactory.gov.
Manufacturing
In the last five years, the Bureau has redesigned
and delivered new $5, $10, $20, and $50 notes
to the Federal Reserve. The new designs are
part of the U.S. Government's ongoing efforts
to maintain the integrity of U.S. currency. The
newly redesigned $5 note was unveiled in 2007
and was put into circulation in the spring of
2008. Work continues on the redesign of the
$100 note and the development of new counterfeit
deterrent features that may be incorporated
into future note designs.
During 2008, the Bureau delivered 7.7 billion
Federal Reserve notes to the Federal Reserve
System. The Washington and Fort Worth facilities
delivered 3.0 billion and 4.7 billion Federal
Reserve notes, respectively. For 2009, the
Federal Reserve System has ordered 6.9 billion
Federal Reserve notes.
Chart
Staffing (FTE) by Function
2004 2005 2006 2007 2008
ADMINISTRATION 400>x>200 400>x>200 400>x>200 400>x>200 400>x>200
MANUFACTURING
SUPPORT 1000>x>900 1000>x>900 800>x>600 1000>x>800 1000>x>800
MANUFACTURING 1000>x>800 1000>x>800 1000>x>800 1000>x>800 1000>x>800
2008 CFO Report
8
Profile of the Bureau of Engraving and Printing
In keeping with its tradition of product innovation
and production efficiency, the Bureau
has installed and put into operation two new
intaglio printing presses in each facility. The
presses have an indirect inking system, the ability
to print larger sheet sizes, and an automated
electronic inspection system. Successful implementation
of this advanced technology will
improve productivity, reduce the Bureau's environmental
impact, and provide the ability to
produce increasingly more complex currency
note designs.
Chart
Currency Production by Facility
(Billions of Notes)
2004 2005 2006 2007 2008
Washington, DC 3.9 4.0 3.7 3.5 3.0
Ft. Worth, TX 4.9 4.5 4.5 5.6 4.7
As part of the Bureau's retooling effort, two new intaglio printing presses were installed in Washington, DC. The
size of the presses required that a special scaffold be built to assist in installation.
2008 CFO Report
9
Profile of the Bureau of Engraving and Printing
The Bureau maintained its certifications for both
the ISO 14001 Environmental Management
Systems and the ISO 9001 Quality Management
Systems during 2008. ISO certifications
are indicative of the Bureau's commitment to
continuous process improvement, world-class
management practices, and environmental responsibility.
Information Technology
In 2008, the Bureau continued to emphasize
increased security and accountability standardization
of Bureau hardware, software and information
technology (IT) related processes,
and enhanced governance of the IT program
and resources.
In IT security, the Bureau's major applications
and general support systems remain accredited
in order to meet the requirement for certification
and accreditation. In response to incidents
of lost government computers and lost information,
which have affected both the federal
and the private sectors, the Bureau has implemented
technologies to encrypt all laptop computers
and removable hard drives.
Also during 2008, the Bureau participated and
continues to participate in a number of reviews
of financial, Federal Information Security Management
Act (FISMA), and IT support systems
as the Bureau applies OMB Circular A-123 and
the Government Accountability Office's Federal
Information System Controls Audit Manual
(FISCAM) audit standards in support of the annual
audited financial statements. The Bureau's
CIO continues to be an active participant in Department
of the Treasury Critical Infrastructure
Protection Planning efforts, including testing
of Continuity of Operation Planning (COOP)
responses through Government and Treasury-
wide exercises and through biannual tests of
the COOP plans for the Bureau's mainframe
computer, enterprise management information
system, and public sales support systems.
Organization
The Bureau's executive structure consists of
the Bureau Director, a Deputy Director, six Associate
Directors, and a Chief Counsel. The
executive committee structure includes an
Executive Committee, the Capital Investment
Committee, and various planning committees
and subcommittees. The planning committees
and subcommittees are composed of a cross-
section of Bureau senior and mid-level managers
who represent diverse organizational units.
By cutting across organizational lines, these
groups serve to promote effective communication,
increased collaboration, and participative,
proactive management.
The older intaglio presses are moved out to
make room for the new.
2008 CFO Report
10
Keeping the Greenback "Green"
Most have heard or used the term "Greenback"
to refer to the United States paper currency.
The term originated in the 1800's to refer to
the newly printed, green-colored U.S. currency,
and is still a valid description today because
the backs of the current Federal Reserve notes
are printed with green ink. A greenback now is
understood to mean any denomination of U.S.
currency, which is printed at the Bureau of Engraving
and Printing's facilities in Washington,
DC and Fort Worth, Texas.
Although well over 100 years old, today there
is more to the greenback than just green ink.
In the parlance of today's environmentally conscious
society, the greenback truly is "green".
All United States currency is printed on a
substrate (currency paper) that is a combination
of 75 percent cotton and 25 percent linen.
When cotton and flax (linen is made from the
flax plant) are planted and harvested, a certain
amount of energy is consumed and carbon dioxide
(a greenhouse gas) is created. This is
commonly referred to as a carbon footprint.
In this case, the carbon footprint is how much
carbon dioxide is produced while growing the
materials that make up the paper on which currency
is printed.
Similarly, obtaining the materials to make the
inks used to print the currency also has a carbon
footprint. While the cotton and flax plants
are growing, they consume, through photosynthesis,
much more carbon dioxide than is required
to produce the currency's raw materials.
In fact, on a per one-dollar note basis, the
plants will consume (carbon sequestration) 46
times the amount of carbon produced obtaining
all of the major materials for the one-dollar
note. And, that is why the greenback is really
"green".
The Bureau demonstrates its commitment to
being an environmentally responsible corporate
citizen in several other ways. The ongoing
retooling of the currency production processes
is replacing old printing equipment with the best
printing technology available. The new presses
will consume less ink and employ state-of-the-
art air scrubbers, which will significantly reduce
air emissions.
[Cotton field plus close-up of plant]
U.S. currency is printed on paper that is 75 percent cotton and 25 percent linen. The
above photo shows a field of cotton with an inset photo of ripe cotton.
2008 CFO Report
11
Keeping the Greenback "Green"
The use of low volatile organic compound
(VOC) inks and low VOC cleaners in the
presses will further reduce possible pollution.
Whenever possible, the Bureau recycles
and reuses materials from the production process.
When completed and placed in service,
the new wastewater recycling system will recycle
approximately 95% of the water used in
the printing process. These efforts, along with
maintenance of the ISO 14001 certification (environmental
management system), proactively
demonstrate that keeping the greenback and the
environment "green" is a strategic objective at
the Bureau.
[Field]
The above photo shows a field of flax. U.S. currency paper is 25% linen, which is made
from flax.
2008 CFO Report
12
Executive Organizational Structure
[First Level]
LARRY R. FELIX
DIRECTOR
BUREAU MISSION
The mission of the Bureau of Engraving
and Printing is to design and manufacture
high quality security documents that meet
customer requirements for quality, quantity,
and performance, including counterfeit
deterrence.
[Second Level]
PAMELA J. GARDINER
DEPUTY DIRECTOR
BUREAU VISION
The Bureau of Engraving and Printing is a world-class
securities printer providing our customers and the
public superior products through excellence in manufacturing
and technological innovation.
[Third Level, First Item]
JON CAMERON
ASSOCIATE DIRECTOR
(EASTERN CURRENCY FACILITY)
The mission of the ECF is to assure the manufacturing
of all government security documents in a cost-effective
and efficient manner that satisfies the needs of the
customer, and to provide a safe and secure working environment
for employees in the Washington, DC facility.
[Third Level, Second Item]
CHARLENE WILLIAMS
ASSOCIATE DIRECTOR
(WESTERN CURRENCY FACILITY)
The mission of the WCF is to assure the manufacturing
of all government security documents in a cost-effective
and efficient manner that satisfies the needs of the
customer, and to provide a safe and secure working
environment for employees in the Fort Worth, Texas
facility.
[Fourth Level, First Item]
LEONARD R. OLIJAR
ASSOCIATE DIRECTOR
(CHIEF FINANCIAL OFFICER)
The mission of the CFO Directorate is to maintain the
integrity of the Bureau's revolving fund, provide the
financial resources necessary to meet customer requirements,
and oversee management control functions and
the mutilated currency redemption program.
[Fourth Level, Second Item]
SCOTT WILSON
ASSOCIATE DIRECTOR
(MANAGEMENT)
The mission of the Management Directorate is to
provide the highest quality Security, Human Resources,
and Labor Relations, in support of the overall Bureau
mission.
[Fifth Level, First Item]
PETER O. JOHNSON
ASSOCIATE DIRECTOR
(CHIEF INFORMATION OFFICER)
The mission of the CIO Directorate is to provide proven
state-of-the-art information technology in support of
cost-effective production of U.S. security products, with
primary emphasis on U.S. currency.
[Fifth Level, Second Item]
JUDITH DIAZ MYERS
ASSOCIATE DIRECTOR
(TECHNOLOGY)
The mission of the Technology Directorate is to support
the production of United States currency and other government
securities by incorporating new covert features
that prevent counterfeiting, by developing new production
processes that enhance the quality and production of
securities, by providing facility support and maintenance.
[Sixth Level]
KEVIN J. RICE
CHIEF COUNSEL
The mission of the Office of the Chief Counsel is to
provide the highest quality legal services in support of
the overall Bureau mission.
2008 CFO Report
13
Safety, Health, and Environmental Management
The Bureau continued making strides in pursuing
environment, health, and safety (EHS) excellence.
The Office of Environment, Health,
and Safety (OEHS) manages programs that
minimize the Bureau's impact on the environment
and protect workers from injuries, illnesses,
and disabilities. The Bureau's goals are
to maintain a downward trend in occupational
injury and illness rates, as well as minimizing
the environmental impact that operations have
on air emissions, wastewater discharge, and
solid waste.
The Bureau is an ISO 14001 registered organization
that includes all aspects of environment,
health, and safety in an environmental management
system (EMS). The Bureau is committed
to maintaining an EMS that focuses on the
outcomes that are aimed at reducing EHS risks
and impacts, through continuous improvement.
As EMS grows, these continuous improvement
principles are being integrated into more and
more aspects of normal operations.
Improving Worker Health and Safety
A primary focus of the Bureau's Office of Environment,
Health, and Safety is to continually
reduce injuries, illnesses, and lost workdays.
The Bureau's history of success is evident in
benchmark data. While there was an increase
in the 2008 Occupational Safety and Health
Administration (OSHA) reportable lost time
case rate, the rate in 2008 was the second lowest
in the last decade.
The Bureau tracks improvements under the
Safety, Health, and Return to Employment
(SHARE) initiative that was launched in 2004
with the purpose of reducing occupational injuries,
illnesses, and fatalities within the Federal
government. The initiative established
four goals in the critical areas of safety, health,
and injury case management, with performance
measured on improvements beginning
in 2004.
The Department of the Treasury annually sets
reduction goals related to the SHARE initiative.
The Bureau has consistently achieved reductions
in injury cases that exceed Departmental
expectations. The preceding chart indicates the
Bureau's progress in meeting these expectations.
Despite the slight increase in the OSHA-
reportable lost time case rate that is reported
above, our total injury case rate decreased 6%
from 2007 to 2008.
[Chart]
Bureau of Engraving and Printing
Case Rates
Fiscal Year Total Cases Total Case Rate Per 100 Employees
2004 118 4.87
2005 113 4.65
2006 75 3.54
2007 74 3.39
2008 50 3.17
[Chart]
OSHA Reportable Injuries and Illnesses
(Lost Time Rate–Washington, DC Facility)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Lost Time Rate 4.61 4.00 4.25 3.05 3.05 1.55 2.06 1.4 80.65 1.15
2008 CFO Report
14
Safety, Health, and Environmental Management
The Department of the Treasury goals are as
follows:
* Reduction of total case rates for injuries and
illnesses by at least 3% per year;
* Reduction of case rates for lost time injuries
and illnesses by at least 3% per year;
* Increase in the timely filing of injury and illness
notices by at least 5% per year;
* Reduction of the rates of lost production
days due to injuries and illnesses by at least
1% per year.
Because the Federal government made great
strides toward meeting all four goals by the end
of the first three years of the initiative, in 2006,
the SHARE initiative was extended through
2009. This reaffirmed the commitment to improving
workplace safety and health conditions
for Federal workers, while also reducing the financial
costs to America's taxpayers.
[Chart]
Lost Work Days
(Days Lost Due to Injury)
2004 457
2005 439
2006 385
2007 267
2008 416
[Photo]
Safety award winners at the Bureau's Annual Recognition Ceremony. Pictured (from left to right): Jon
Cameron, Associate Director, Eastern Currency Facility, Award winner Nathaniel Perdue, Office of Operations
Support, Bureau Director Larry Felix, Award winner Kevin Bongiorno, Office of Engraving, and
Neal Mohlmann, Office of Environment, Health and Safety.
2008 CFO Report
15
Safety, Health, and Environmental Management
The Bureau anticipates being confronted with
various types of injuries that are difficult to
control, and if the downward trend is to continue,
the Bureau will need to focus on increasing
individual and line supervisor accountability
for unsafe work practices. The Bureau has
set work practice expectations, communicated
these expectations to employees, and established
a multidisciplinary group to review
untoward events and recommend corrective
actions. The intent behind this group is to underscore
the importance of local work unit accountability
for employee health and safety.
Finally, the Bureau has received "The John
Henshaw Award for Corporate Leadership in
Safety." The award is named for John Henshaw,
the former Assistant Secretary for OSHA. It is
awarded for superior leadership in workplace
health and safety by integrating health and
safety into its essential business mission, using
safety to define and measure business success,
and exhibiting vision, commitment, transparency
and employee engagement to achieve sustainable
health and safety performance.
Protecting the Environment
Both of the Bureau's facilities have maintained
their respective ISO 14001 certifications and
have moved forward with EHS plans to continually
improve the Bureau's EHS performance.
The overall intent behind these plans is to institutionalize
EMS and continuous improvement.
The following plans and programs have been
improved or moved forward:
The Bureau plans to install a wiping solu-
tion recycling system. The wiping solution
recycling system will reduce the Bureau's
annual water use by 15 million gallons.
The Bureau has diverted over 2.5 million
pounds of solid waste from landfills through
recycling, re-use, and remanufacture.
The Bureau has established EMS perfor-
mance measures as part of the 2009 Goal
Sharing Plan, further illustrating top management
support for the environment and
the health and safety of employees.
[Chart]
Waste Stream Reductions
Percent Reduction - Washington, DC Facility
Year Wastewater Regulated Waste Air Emissions
1999 0%>x>-25% 0%>x>-25% 0%>x>-25%
2000 0%>x>-25% 0%>x>-25% -50%>x>-25%
2001 -50%>x>-25% -50%>x>-25% -50%>x>-25%
2002 -50%>x>-25% 0%>x>-25% * -50%>x>-25%
2003 -50%>x>-25% -50%>x>-25% -50%>x>-25%
2004 -50%>x>-25% -50%>x>-25% -50%>x>-25%
2005 -50%>x>-25% -50%>x>-25% -75%>x>-50%
2006 -50%>x>-25% -50%>x>-25% -75%>x>-50%
2007 -50%>x>-25% -50%>x>-25% -75%>x>-50%
2008 -75%>x>-50% -75%>x>-50% -75%>x>-50%
* 2002 Warehouse Decommissioning
2008 CFO Report
16
Strategic Plan
The Bureau's Strategic Plan, which was up-
dated in 2008, is aligned with the Department
of the Treasury's Strategic Plan. The Bureau's
Strategic Plan will serve as a roadmap to guide
the Bureau toward its goal of creating a new
environment that will ensure cost-effective and
flexible business operations for years to come.
While committed to meeting the many new
challenges of implementing innovative technol-
ogy, the Bureau remains resolute in producing
quality currency, controlling costs, being sound
environmental stewards, and working safely as
we move towards our vision – to continue as
the preeminent banknote producer worldwide.
We want to make sure we get it right – in all
respects – the first time, every time. The Bu.
reau will rely on the ingenuity, industriousness,
and commitment of every employee to meet
the challenges of printing currency in the 21st
century.
The Bureau's Strategic Goal is to produce cur-
rency of consistently high quality that deters
counterfeiting, contributes to public confi-
dence, and facilitates commerce. In order to
achieve this Strategic Goal the Bureau has es-
tablished three strategic objectives. These stra-
tegic objectives are: Quality Manufacturing;
Innovative and Effective Design; and Security
and Accountability.
Quality Manufacturing encompasses quality,
cost effectiveness, and efficiency, which serve
to maintain the Bureau's stature as a world-class
securities manufacturer. Consistently produc-
ing high quality currency improves customer
satisfaction and maintains public confidence in
U.S. currency.
The technological sophistication of the manu-
facturing equipment being acquired as part of
the retooling effort will require a commensu-
rate investment in information technology.
Over the next five years, nearly all of the Bu-
reau's production related business decisions
will be driven by near real-time manufacturing
performance metrics.
Proficiency in the use of the new equipment
will require employees who are highly skilled
and adaptable. To ensure the availability of this
type of workforce, the Bureau has initiated a
competency/skill assessment program to evalu-
ate the skills and the proficiencies of our work.
force and provide training when necessary.
Innovative and Effective Design of currency
instills confidence in the integrity of U.S. cur.
rency. We will continue to collaborate with the
Federal Reserve, the U.S. Secret Service, other
partners, and stakeholders to identify, evaluate,
and improve features in new currency designs,
while ensuring acceptance in the market place.
Counterfeiting of U.S. currency is an interna-
ceptance of the U.S. dollar. This use provides
a substantial economic benefit to the United
States. The Strategic Plan calls for conduct-
ing robust research and development to ensure
a continued technological advantage is main-
tained over evolving counterfeiting threats.
2008 CFO Report
17
Strategic Plan
Since U.S. currency is so widely used outside
the United States, it is imperative that business
and financial communities, foreign exchange
companies, law enforcement groups, banking
officials, other cash handlers, and ultimately
the general public around the world know
about the new bill designs and counterfeit deterrent
features. Accordingly, the Bureau has
incorporated a strategy for public education,
communication, and outreach to all currency
users to inform them of new currency designs
and features.
Security and Accountability is the third objective
in the Strategic Plan. This is an important
objective because the Bureau is the U.S. Government's
security printer and is mandated to
maintain the highest levels of security and accountability
over our product, property, funds,
and other assets. The Bureau must continually
guard against fraud, loss, unauthorized use, and
misappropriation.
Over the next five years, the Bureau will be implementing
a risk-based management approach
specifically designed to identify and rank risks
and vulnerabilities. This ranking process will
ensure commensurate attention and resource
allocation to the most vulnerable areas. The
risk-based accountability and testing programs
are designed to assess, test, and monitor the
adequacy of management oversight, as well as
the adequacy of the Bureau's physical security
infrastructure.
The Bureau also offers free public tours at both
facilities and processes claims for redemption
of damaged paper currency. These services are
offered free of charge. The tour of the Washington,
DC facility is one of the most popular
attractions in the Nation's Capital.
The Bureau has positioned itself to meet its
strategic goal and the related objectives from
both an operational and financial management
perspective. The Bureau will uphold its tradition
of excellence by taking advantage of opportunities
to maintain a talented workforce,
practice a disciplined capital investment strategy,
enhance product quality, promote counterfeit
deterrence, and streamline manufacturing
processes.
Kris Dethloff, Office of Security Printing discusses the features of an offset
printed sheet with a soldier visiting the Bureau's Washington, DC facility.
2008 CFO Report
18
Federal Manager's Financial Integrity Act
Plans and Accomplishments
The Federal Managers' Financial Integrity Act
(FMFIA), which was passed in 1982, requires
agencies to perform regular evaluations of in-
ternal controls and financial management sys.
tems to protect against fraud, waste, and abuse.
The subsequent passage of the Chief Financial
Officers Act, the Federal Financial Manage.
ment Improvement Act, and the Sarbanes-Ox-
ley Act of 2002 further increased internal con-
trol requirements.
The Bureau has a history of strong internal con-
trols and an aggressive monitoring program.
Key elements of this program include compre-
hensive financial management controls, per-
sonnel security controls, production and qual-
ity controls, computer security and information
resources management programs, and strong
physical security and product accountability
functions to safeguard products and assets. The
Bureau's Strategic Plan reflects this emphasis.
Security, accountability, and resource manage-
ment are major strategic objectives.
To enhance product accountability, the Bureau
maintains Accountability Help Desks at its fa-
cilities in Washington, DC and Fort Worth, Tex-
as. The Help Desks are staffed with personnel
knowledgeable in all aspects of the Bureau's ac-
countability system. They provide training and
day-to-day assistance to accountability system
users to prevent, minimize, or resolve product
accountability issues. In addition, they review
and update existing accountability procedures
and reports to provide the controls needed to
properly track and account for Bureau securities.
Ongoing efforts to improve internal controls in-
clude compliance reviews and an active inter-
nal control awareness program. The Bureau's
Compliance Review Teams (CRTs) in both fa-
cilities promote compliance with Bureau oper-
ating policies and procedures by performing un-
announced reviews in production, storage, and
off-line components that have custody of secu-
rity items. During 2008, the CRTs performed
434 unannounced reviews. The results of the
reviews were reported to office chiefs, super.
visors, and managers responsible for enforcing
policies and procedures, and implementing cor-
rective actions. The Internal Control Awareness
Program is also used to promote the visibility
and understanding of internal control issues,
objectives, and requirements. Internal review
personnel conduct management and organiza-
tional reviews at both facilities to strengthen
the Bureau's internal controls, ensure compli-
ance with existing policies and procedures, and
safeguard Bureau assets. The Bureau's quality
management system for the production of U.S.
currency is ISO 9001 registered, while the environ-
mental management system is ISO 14001
registered. ISO registrations are internationally
recognized designations of an organization's
commitment to rigorous quality standards (ISO
9001) and effective environmental stewardship
(ISO 14001). The internal review staffs support
the maintenance and continuous improvement
of the Bureau's quality and environmental
management systems by conducting internal
quality audits throughout the Bureau.
2008 CFO Report
19
FMFIA Plans and Accomplishments
The Bureau's Internal Control Policy Committee
(ICPC) provides overall guidance and coordination
to the internal control program and
fosters a management environment in which
accountability for results and cost effective
controls are maintained to ensure the reliability
of financial reporting, effectiveness of operations,
and compliance with applicable laws and
regulations. The ICPC is comprised of senior
level executives and is chaired by the Bureau's
Chief Financial Officer.
The financial statements and annual audit are
important elements in the stewardship of the
Bureau's revolving fund. For the 24th consecutive
year, the Bureau has received an unqualified
opinion on its financial statements from an
independent, certified public accounting firm.
Additionally, for the fourth consecutive year,
the Bureau received an unqualified opinion
from the auditors on management's assertion
that the Bureau maintained effective internal
control over financial reporting as of September
30, 2008, based on criteria established in Internal
Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO Frame-
work) and the requirements of Appendix A
of Office of Management and Budget Circular
A-123, "Management's Responsibility for
Internal Control." The unqualified audit opinion
on the financial statements, the unqualified
opinion on the internal control over financial
reporting, and the FMFIA review process ensure
the integrity of the revolving fund and the
reliability of financial data used for managerial
decision-making. In addition to the annual audit
of the Bureau's financial condition, OMB's
Program Assessment Rating Tool was used to
evaluate the Bureau's currency-manufacturing
program, and its protection and accountability
programs. The high scores that the programs
received indicate that they are functioning as
intended and performance information is reliable.
[Photo]
The Bureau successfully implemented an e-commerce system that processes on-line purchase
orders, invoices and payments. The Internet Payment Platform (IPP) team (from left
to right): Robert Deans, Debbie Fisher, Parraize Butler, Linda Avery, and Tom Liebrand.
2008 CFO Report
20
FMFIA Plans and Accomplishments
In 2008, the Bureau continued to emphasize
increased security and accountability standard-
ization of Bureau hardware, software, and in-
formation technology (IT) related processes
and enhanced governance of the IT program
and resources. In IT security, 100% of the Bureau's
major applications and general support
systems have been certified and accredited for
operation. In responding to concerns about
lost computers and data throughout the Federal
Government and the private sector, the Bureau
has implemented technologies to encrypt all
laptop computers and removable hard drives.
The CIO Directorate continues to refine policy
and procedures for ensuring the adequacy of
management controls throughout the life cycle
of all hardware and software. BEP is committed
to full implementation of the National
Institute of Standards and Technology (NIST)
requirements for management, operational, and
technical controls for IT systems, as well as
100% implementation of the Federal Desktop
Core Configuration for Microsoft software and
NIST approved configurations for other operating
systems and databases.
During 2008, the Bureau participated in a
number of audits and reviews of financial and
support IT systems, and Federal Information
Security Management Act (FISMA) imple-
mentation. BEP continues to design and implement
controls to comply with the Sarbanes-
Oxley Act Section 404 and the Government
Accountability Office's Federal Information
System Controls Audit Manual audit standards,
in order to support the annual audited financial
statements. The CIO Directorate is an active
participant to Department of the Treasury Critical
Infrastructure Protection Planning efforts,
including testing of Continuity of Operation
Planning (COOP) responses through Government
and Treasury-wide exercises. The Directorate
also tests COOP plans for the Bureau's
mainframe computer, enterprise management
information system, and public sales support
systems twice a year.
BEP Director Larry Felix talking with Bureau employees
at a Town Hall meeting.
2008 CFO Report
21
Assurance Statement for Fiscal Year 2008
The Bureau of Engraving and Printing made a conscientious effort during 2008 to meet
the internal control requirements of the Federal Managers' Financial Integrity Act (FMFIA)
of 1982, the Federal Financial Management Improvement Act (FFMIA) of 1996,
Office of Management and Budget (OMB) Circular A-123, and the Reports Consolidation
Act of 2000. The Bureau, taken as whole, is operating in accordance with the procedures
and standards prescribed by the Comptroller General of the United States and
OMB guidelines.
As required by the FMFIA, the Bureau evaluated both its internal controls and financial
management systems for fiscal year 2008. The results of these evaluations provided
reasonable assurance that the internal controls (Section 2) and the financial management
systems (Section 4) are in overall compliance with standards prescribed by the Comptroller
General of the United States and guidance issued by the OMB. In addition, the
Bureau had no instances of material internal control weaknesses and no material nonconformances
outstanding as of September 30, 2008.
The Bureau evaluated its internal control over financial reporting in accordance with
OMB Circular A-123, "Management's Responsibility for Internal Control." Based on
the results of this evaluation, the Bureau can provide reasonable assurance that internal
control over financial reporting as of September 30, 2008, is operating effectively and no
material weaknesses were found in the design or operation of the internal control over
financial reporting. Further, the Bureau has active programs in place to provide reasonable
assurance that programs achieve their intended results; resources are used consistent
with the Bureau's overall mission; programs and resources are free from waste,
fraud, and mismanagement; laws and regulations are followed; controls are sufficient
to minimize any improper or erroneous payments; performance information is reliable;
systems security is in substantial compliance with all relevant requirements; continuity
of operations planning in critical areas is sufficient to reduce risk to reasonable levels;
and financial management systems are in compliance with federal financial systems
standards.
Larry Felix
2008 CFO Report
22
Automation at the Western Currency Facility
Jimmy McCollum, Electro-machinist, discusses a
currency sheet with Anna E. Cabral, Treasurer of the
United States.
Jimmy McCollum, Electro-machinist, demonstrates
the capabilities of the new Overprinting Inspection
System in Fort Worth to Treasurer Cabral.
Robert Pettit, Office of Currency Manufacturing, discusses features of a new
robotic currency palletizer to Treasurer Cabral.
2008 CFO Report
23
Custody of Assets
In addition to the production of currency, the
Bureau has many high-value items that are used
for various purposes such as research, product
testing, and historical reference. Consequent-
ly, the Bureau of Engraving and Printing has a
unique fiduciary responsibility to the American
public with respect to the custody and safe-
guarding of its assets and high-value items.
Currency products and other items used in
tests, experimental research, and other off-line
activities are normally expensed immediately
and are not carried as assets in the Bureau's fi-
nancial statements. While the costs expensed
may be immaterial to the financial statements,
many of these items have high intrinsic value.
Therefore, the Bureau ensures that adequate
controls are in place to properly safeguard
these items. The Bureau also has display areas
at each of its facilities and maintains historical
collections at its headquarters in Washington,
DC. The displays and historical collections in-
clude valuable artifacts related to currency and
the former postage stamp operations, as well as
other securities produced by the Bureau. While
these collections are not included in the invent-
tory balances as reported in the financial state.
ments, appropriate custodial records and con-
trols are maintained. Physical inventories are
performed regularly to ensure accountability
for these collections.
Although the Bureau does not hold title to any
land or facilities, it maintains custodial control
over the buildings occupied in Washington, DC
and Fort Worth, Texas.
In order to effectively manage its fiduciary
and custodial responsibilities, the Bureau has
implemented effective internal control and se-
curity systems. To ensure these systems are
functioning properly, management has institu-
tionalized an organizational focus on the safe-
guarding and accountability of all assets. This
focus is reflected in the Bureau's organizational
structure. Reporting to the Associate Director
(Chief Financial Officer), who has oversight re-
sponsibility with respect to internal controls, is
the Office of Compliance. This office evaluates
and monitors internal control systems and maintains
a comprehensive product accountability
system. The Office of Security, which reports
to the Associate Director (Management), plans,
administers, and monitors the Bureau's security
programs. These programs include personnel,
physical and operational security as well as
securities destruction. Through this structure,
individual unit managers are held accountable
and responsible for maintaining proper custody
and safeguarding of all assets under their control.
To further reinforce the internal control
and security structure, a security and internal
control element is included in each employee's
performance plan. Employees are rated annually
regarding their performance with respect
to this element.
Oscar Vela, Plate Printer, monitors one of the new
intaglio printing presses during production.
2008 CFO Report
24
Custody of Assets
Gary Slaght, Engraver, numbers an engraved plate manually. The manual
pantograph is used to etch the same image into multiple locations on a plate.
Allen Pipes, Office of Engraving, uses the new Laser Pantograph, which utilizes
laser technology to etch images faster and more consistently.
2008 CFO Report
25
Program Performance Measures
The Bureau measures the effectiveness and
efficiency of its overall organizational perfor-
mance by using program performance measures.
Standards are developed annually by
the senior executive staff based on the prior
year's performance, contracted price factors,
and anticipated productivity improvement.
Actual performance against standard depends
on the Bureau's ability to meet annual spoilage,
efficiency, and capacity utilization goals
established for currency production.
The Bureau does not receive Federal appropriations;
operations of the Bureau are financed
by a revolving fund that is reimbursed through
product sales. Customer billings are the Bureau's
only means of recovering the costs of
operations and generating funds necessary for
capital investment. Billing rates are based on
established cost standards, which are predicated
on historical costs and factors such as
changes in labor, material, and overhead costs.
To ensure that sufficient cash is provided for
operations, the Bureau must perform to these
standard costs.
[Chart]
Currency 2008 2008
Cost per Thousand Notes Standard Actual
Federal Reserve Notes $29.79 $29.60
The actual production cost per thousand currency
notes, which includes direct labor and
materials, and applied manufacturing overhead,
was slightly below standard in 2008. This was
due primarily to the increased usage of reconstituted
(recycled) ink, improved ink mileage
(favorable ink utilization), and reduced spoilage.
[Chart]
Currency 2008 2008
Deliveries Order Actual
Federal Reserve Notes (Billions) 7.7 7.7
In 2008, the Bureau delivered 7.7 billion Federal
Reserve notes to the Federal Reserve System.
Deliveries and billings are based on orders
received from the customer. The Federal
Reserve submits their requirements for curren-
cy deliveries to the Bureau on an annual basis.
In 2008, the Federal Reserve reduced the order
at mid-year. For 2009, the Federal Reserve has
ordered 6.9 billion notes.
[Chart]
Bureau-level performance measures and associated results for 2008 are as follows:
Measure 2008 Standard 2008 Actual
1. Federal Reserve Notes (Cost Per Thousand Notes) $29.79 $29.60
2. Federal Reserve Notes Delivered (Billions) 7.7 7.7
3. Productivity Change 2007 to 2008 -14.3% -12.3%
4. Currency Spoilage 4.5% 4.2%
2008 CFO Report
26
Program Performance Measures
[Chart]
Currency Deliveries
(Billions of Notes)
1999 11.4
2000 9
2001 7
2002 7
2003 8.2
2004 8.8
2005 8.5
2006 8.2
2007 9.1
2008 7.7
[Chart]
Currency Spoilage
(Percentage)
2004 4.3
2005 4.3
2006 4.3
2007 4.4
2008 4.2
[Chart]
2008 2008
Productivity Change Standard Actual
Productivity -14.3% -12.3%
Productivity is calculated based on units of output
per labor hour. In 2008, overall productivity
decreased by 12.3%. This was primarily
due to the substantial decrease in the currency
order.
Staffing development, including apprenticeship
and training programs, has intensified as
the multi-million capital investment initiative
to retool and retrofit the Bureau's production
processes continues. The advanced technology
incorporated in the new equipment requires
the availability of a highly skilled and adaptive
workforce. As part of this development process,
new initiatives to assess skill gaps throughout
the Bureau have been implemented. These initiatives
are designed to identify skill gaps and
training needs, as well as the possible benefits
of staffing realignments. The Bureau has also
launched the Treasury Learning Management
System (TLMS). The TLMS empowers employees,
through a web-based application, to
take training online that meets their individual
needs.
[Chart]
2008 2008
Currency Spoilage Standard Actual
Federal Reserve Notes 4.5% 4.2%
Spoilage, an inherent result of any production
process, is an important indicator of the overall
effectiveness of the production process and
quality of material inputs. In 2008, overall currency
spoilage was below standard. This was
the result of older, less efficient production
equipment being taken off-line. As the Bureau's
multi-year retooling initiative continues,
additional older equipment will be taken out of
service as replacement equipment begins production.
2008 CFO Report
27
Program Performance Measures
[Chart]
Comparable Performance Measures for Three Years
2006 2007 2008
1. Federal Reserve Notes (Cost/Thousand Notes) $27.42 $28.66 $29.60
2. Federal Reserve Notes Delivered (Billions) 8.2 9.1 7.7
3. Productivity Change Year to Year -5.6% 7.6% -12.3%
4. Currency Spoilage 4.3% 4.4% 4.2%
For those performance measures that are comparable, the results of the past three years are presented. New cost and spoilage standards are
developed annually for all product lines produced at the Bureau. Because performance to standard is a meaningful performance measure only
in the applicable year, only actual manufacturing cost and spoilage data are presented.
Prompt Payment
To ensure that Federal agencies pay invoices in
a timely manner, Congress passed the Prompt
Payment Act and the Office of Management
and Budget (OMB) issued Circular A-125,
which is now codified as part of the Code of
Federal Regulations (CFR). Generally, the
CFR requires payment within 30 days from the
latter of either the receipt of a proper invoice or
acceptance of the goods/services. If this time
frame is not met, an interest penalty must be
paid to the vendor. Within the Department of
the Treasury, the standard for the late payment
rate is that no more than 2% of the invoices
subject to prompt payment shall be paid late (at
least 98% paid within 30 days). The Bureau's
prompt payment performance for the past three
years is presented below. As the data indicates,
the Bureau has continued to perform much better
than the Department standard for late payments.
[Chart]
2006 2007 2008
1. Number of Invoices Paid Late 43 58 25
2. Interest Penalties Paid $2,126 $1,165 $936
3. Percent of Invoices Paid Late 0.65% 0.92% 0.40%
2008 CFO Report
28
"Money Talks" at the Bureau
Cathy Ford, Executive Assistant, builds her public
speaking skills with the Bureau Toastmasters
chapter, "Money Talks".
Fellow toastmasters, Claudia Asihene, D'Angela
Moore, Everett Dunlap, and Alesia Turner critique a
speech.
The Bureau's Toastmasters Chapter, "Money Talks".
2008 CFO Report
29
Management Discussion and Analysis
During 2008, the Bureau of Engraving and
Printing focused its resources and efforts on
producing the most secure currency ever issued
by the Federal Reserve. The Nation's
new currency is enhanced by additional, advanced
counterfeit deterrent features that are
indicative of a world-class symbol of security
and integrity.
Because of planned increases in capital spending,
currency-billing rates for the 2008 currency
program included a charge for the acquisition
of capital assets as part of the Bureau's multi-
year retooling initiative. Revenue in excess
of expenses for the year was minimal because
management chose not to adjust billing rates to
compensate for the substantial mid-year reduction
in the currency order.
Revenue in 2008 decreased due to a substantial
decrease in the number of Federal Reserve
notes ordered and delivered to the Federal Reserve
System. Total Federal Reserve notes delivered
in 2008 were 7.7 billion notes, which
was a decrease of 1.4 billion notes from the
previous year's delivery of 9.1 billion notes.
The Bureau continues to remain well capitalized
with respect to working capital requirements.
Cash
Cash decreased by $22 million in 2008. The
decrease is attributed to the reduction in the
2008 currency order.
Accounts Receivable
Accounts receivable increased by $7 million in
2008. This was due to the amount of currency
delivered in the last month of the year and the
price of that currency.
[Chart]
Research and Development Costs
(Millions of Dollars)
2004 8.6
2005 7.6
2006 10.7
2007 14
2008 12
[Chart]
Total Revenue
(Millions of Dollars)
2004 525
2005 512
2006 477
2007 578
2008 517
2008 CFO Report
30
Management Discussion and Analysis
Inventories
Inventories remained relatively unchanged in
2008.
Property and Equipment
Net property and equipment increased $26 million
in 2008 to $282 million. The increase was
related to the purchase of currency manufacturing
equipment obtained as part of the retooling
effort.
Other Assets
Other assets, primarily machine repair parts and
tools, remained relatively unchanged in 2008.
Accounts Payable
Accounts payable decreased from $16 million
in 2007 to $13 million in 2008. The principal
cause for the decrease was the timing of cash
disbursements in making vendor payments.
Accrued Current Liabilities
Accrued current liabilities remained relatively
unchanged in 2008.
Advances
Advances increased by $5 million in 2008. The
increase is attributed to an increase in special
security product orders and customer funding
received at year-end.
[Chart]
Average Billing Rate for Currency
Year Rates Per Thousand Notes Single Note
1998 $40.20 $0.040
1999 $44.36 $0.044
2000 $45.34 $0.045
2001 $46.64 $0.047
2002 $54.39 $0.054
2003 $57.16 $0.057
2004 $55.56 $0.056
2005 $56.08 $0.056
2006 $54.56 $0.055
2007 $60.99 $0.061
2008 $63.82 $0.064
2008 CFO Report
31
Management Discussion and Analysis
Workers' Compensation Liabilities
The actuarial workers' compensation liability
experienced an increase of $4 million in 2008.
The increase in the actuarial liability primarily
resulted from changes (reductions) in the discount
rates used to determine the liability.
Revenue from Sales
Overall revenue from sales decreased from
$578 million in 2007 to $517 million in 2008.
This $61 million decrease is attributable to the
decrease in the currency order.
Cost of Goods Sold
Cost of goods sold decreased from $462 million
in 2007 to $443 million in 2008. The $19
million decrease relates to the lower 2008 sales
volume. The gross margin as a percentage of
revenue decreased from 20 percent in 2007 to
14 percent in 2008. The decreases in both accounts
can be attributed to the reduction in the
2008 currency order.
Operating Costs
Operating costs increased by $3 million in
2008. The increase is attributed to increased
general and administrative expenses related
to labor and benefits increases and increased
spending for IT security.
[Chart]
Annual Investment in Property and
Equipment
(Millions of Dollars)
2004 17.8
2005 24
2006 34
2007 38
2008 54
[Photo]
The Bureau won the 2008 Henshaw Award for Corporate Leadership in Safety for its demonstrated
leadership and commitment to workplace health and safety. Pictured with the
award (from left to right): Scott Wilson, Associate Director, Management, Neal Mohlmann,
Office of Environment, Health, and Safety, Bill Brabitz, Office of Operations Support, and
Jon Cameron, Associate Director, Eastern Currency Facility.
2008 CFO Report
32
The Bureau of Engraving and Printing facility in Washington, DC.
Limitations of the Financial Statements
The following financial statements are for the Bureau of Engraving and Printing, a component
of the Department of the Treasury. As such, the statements should be read with the realization
that they are for a component of the U.S. Government, a sovereign entity. The principal financial
statements have been prepared to report the financial position, results of operations and cash
flows of the Bureau. They have been prepared from the Bureau's financial books and records
maintained in accordance with private sector generally accepted accounting principles. These
statements are in addition to the financial reports used to monitor and control budgetary resources,
which are prepared from the same books and records.
2008 CFO Report
33
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Financial Statements
Years ended September 30, 2008 and 2007
(With Independent Auditors' Reports Thereon)
2008 CFO Report
34
[KPMG logo]
KPMG LLP
2001 M Street, NW
Washington, DC 20036
Independent Auditors' Report
The Inspector General, Department of the Treasury and
The Director of the Bureau of Engraving and Printing, Department of the Treasury:
We have audited the accompanying balance sheets of the Bureau of Engraving and Printing (Bureau) as of
September 30, 2008 and 2007, and the related statements of operations and cumulative results of
operations and cash flows (hereinafter referred to as "financial statements") for the years then ended. These
financial statements are the responsibility of the Bureau's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America; the standards applicable to financial audits contained in Government Auditing Standards, issued
by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin
No. 07-04, Audit Requirements for Federal Financial Statements. Those standards and OMB Bulletin
No. 07-04 require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Bureau of Engraving and Printing as of September 30, 2008 and 2007, and the
results of its operations and its cash flows for the years then ended in conformity with U.S. generally
accepted accounting principles.
We have also examined management's assertion that the Bureau maintained effective internal control over
financial reporting as of September 30, 2008, and have issued our report thereon dated October 28, 2008.
That report is an integral part of an audit performed in accordance with Government Auditing Standards
and should be read in conjunction with this report in assessing the results of our fiscal year 2008 audit.
In accordance with Government Auditing Standards, we have also issued our report dated October 28,
2008, on our tests of the Bureau's compliance with certain provisions of laws, regulations, contracts, and
other matters. The purpose of that report is to describe the scope of our testing of compliance and the
results of that testing, and not to provide an opinion on compliance. That report is an integral part of an
audit performed in accordance with Government Auditing Standards and should be read in conjunction
with this report in assessing the results of our fiscal year 2008 audit.
KPMG LLP
October 28, 2008
KPMG LLP, a U.S. limited liability partnership, is the U.S.
member firm of KPMG International, a Swiss cooperative.
2008 CFO Report
35
[Chart]
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Balance Sheets
As of September 30, 2008 and 2007
2008 2007
-------- --------
(In Thousands)
ASSETS
Current assets
--Cash (Note 3) $153,511 $175,980
--Accounts receivable (Note 10) 46,552 39,134
--Inventories, net (Note 4) 103,967 107,102
--Prepaid expenses 4,871 5,452
-------- --------
Total current assets 308,901 327,668
Property and equipment, net (Note 5) 281,876 256,056
Other assets, net (Note 6) 18,059 18,459
-------- --------
Total assets $608,836 $602,183
LIABILITIES AND EQUITY
Liabilities
---Current liabilities (Notes 7 and 8)
----Accounts payable $ 13,359 $ 15,507
----Accrued liabilities 28,585 29,289
----Advances 6,477 1,623
-------- --------
Total current liabilities 48,421 46,419
Workers' compensation liability (Note 8) 61,447 57,435
-------- --------
Total liabilities 109,868 103,854
Contingencies and commitments (Notes 12 and 13)
Equity
---Invested capital 32,435 32,435
---Cumulative results of operations 466,533 465,894
-------- --------
Total equity 498,968 498,329
-------- --------
----Total liabilities and equity $608,836 $602,183
======== ========
See accompanying notes to the financial statements.
2008 CFO Report
36
[Chart]
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Statements of Operations and
Cumulative Results of Operations
For the Years Ended September 30, 2008 and 2007
2008 2007
-------- --------
(In Thousands)
Revenue from sales (Note 10) $516,610 $578,111
Cost of goods sold 443,263 461,565
-------- --------
Gross margin 73,347 116,546
-------- --------
Operating costs:
---General and administrative expenses 60,262 56,219
---Research and development 12,446 13,996
-------- --------
72,708 70,215
Excess of revenues over expenses 639 46,331
Cumulative results of operations at beginning of year 465,894 419,563
-------- --------
Cumulative results of operations at end of year $466,533 $465,894
See accompanying notes to the financial statements.
2008 CFO Report
37
[Chart]
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Statements of Cash Flows
For the Years Ended September 30, 2008 and 2007
2008 2007
-------- --------
(In Thousands)
Cash flows from operating activities
Excess of revenues over expenses $ 639 $ 46,331
---Adjustments to reconcile excess of revenues over expenses
to net cash provided by operating activities:
----Depreciation 28,619 31,990
----Loss from disposal of property and equipment 38 —
---Changes in assets and liabilities
----Increase in accounts receivable (7,418) (6,102)
----Decrease (increase) in inventories 3,135 (23,586)
----Decrease (increase) in prepaid expenses 581 (1,131)
----Decrease (increase) in other assets 400 (934)
----(Decrease) increase in accounts payable (2,148) 3,689
----Decrease in accrued liabilities (704) (476)
----Increase in advances 4,854 724
----Increase (decrease) in workers' compensation liability 4,012 (1,572)
-------- --------
Net cash provided by operating activities 32,008 48,933
-------- --------
Cash flows from investing activities
Purchases of property and equipment (54,477) (37,682)
---Net cash used in investing activities (54,477) (37,682)
-------- --------
Net (decrease) increase in cash (22,469) 11,251
Cash at beginning of year 175,980 164,729
-------- --------
Cash at end of year $153,511 $175,980
======== ========
See accompanying notes to the financial statements.
2008 CFO Report
38
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Notes to the Financial Statements
September 30, 2008 and 2007
1. Reporting Entity
The Bureau of Engraving and Printing (Bureau), a component of the United States (U.S.)
Department of the Treasury, is the U.S. Government's security printer. The Bureau designs and
produces U.S. currency. The Bureau also advises and assists Federal agencies in the design and
production of other U.S. Government documents requiring counterfeit deterrence or secure
production.
The Bureau operates under basic authorities conferred by the Act of July 11, 1862, (12 Stat. 532;
also, 31 U.S.C. 5114) and other laws and regulations. In accordance with the provisions of
Public Law 81-656, effective August 4, 1950, the operations of the Bureau are financed by
means of a revolving fund. This fund is reimbursed through billings to the Bureau's customers
for products delivered. Public Law 95-81 authorized the Bureau to include in its product prices
an amount to provide funding for the acquisition of capital equipment and future working
capital. Invested capital represents the historical value of the initial contribution made by the
Federal Government.
The financial statements represent the consolidation of two Federal revolving funds. The
majority of all financial transactions (approximately 99%) are contained in the Bureau of
Engraving and Printing Revolving Fund, which finances Bureau operations. The other revolving
fund, the Mutilated Currency Revolving Fund, is used to redeem damaged paper currency
received from the public. All significant balances and transactions between the funds have been
eliminated in consolidation.
2. Summary of Significant Accounting Policies
Basis of Accounting
The Bureau has historically prepared its financial statements in conformity with U.S. generally
accepted accounting principles (GAAP), based on accounting standards issued by the Financial
Accounting Standards Board (FASB), the private-sector standards-setting body. Under such
standards, the Bureau prepares its financial statements using the full accrual basis of accounting
under which revenues are recognized when earned and expenses are recognized as incurred,
regardless of when cash is exchanged.
The Federal Accounting Standards Advisory Board (FASAB) has been designated by the
American Institute of Certified Public Accountants as the standards-setting body for financial
statements of federal government entities, with respect to the establishment of GAAP. FASAB
has indicated, however, that financial statements prepared based upon accounting standards
published by the FASB may also be regarded as in conformity with GAAP for those federal
agencies, such as the Bureau, that have issued financial statements based upon FASB accounting
(continued)
2008 CFO Report
39
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Notes to the Financial Statements
September 30, 2008 and 2007
standards in the past. Accordingly, consistent with historical reporting, the Bureau's financial
statements are presented in accordance with accounting standards published by the FASB.
Cash
Cash represents the aggregate amount of the Bureau's funds held on deposit with the U.S. Treasury
and are available to pay liabilities. The Bureau historically does not maintain significant cash
balances in commercial bank accounts, and owns no cash equivalents.
Estimates
The preparation of financial statements in accordance with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and related
revenues and expenses. Those estimates most significant to the Bureau's financial statements are
the actuarial estimates made by the Department of Labor (DOL) in arriving at the liabilities for
workers' compensation, allowances for obsolescence, the useful lives of property and equipment,
the likelihood of losses associated with contingent liabilities, and certain accrued expenses at the
date of the financial statements. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and disclosed herein.
Inventories
Raw material and supply inventories are stated at standard cost, except for one advanced counterfeit
deterrent material which is valued using the first-in-first-out (FIFO) method. Finished goods
inventories are stated at weighted average unit cost. All methods approximate actual cost. Cost
elements included in work-in-process and finished goods inventories are direct materials, direct
labor, manufacturing overhead, and manufacturing support.
Property and Equipment
Property and equipment are recorded at cost. Major alterations and renovations are capitalized,
while maintenance and repair costs are charged to expense as incurred. The capitalization threshold
is $50,000. The Bureau capitalizes all cost associated with new construction and building
improvements.
The Bureau occupies and uses buildings and land owned by the Department of the Treasury. In
accordance with the Act establishing the revolving fund, the Bureau is not charged for the use of the
buildings or land, but is responsible for maintenance and repair of all buildings and land
improvements. The land and building shell for the Bureau's Western Currency Facility were
donated by the City of Fort Worth, Texas to the Department of the Treasury. See Note 5 for details.
(continued)
2008 CFO Report
40
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Notes to the Financial Statements
September 30, 2008 and 2007
Depreciation of property and equipment is calculated using the straight-line method over the
following estimated useful lives:
[Chart]
Machinery and equipment 3 - 15 years
Building improvements 3 - 40 years
Information technology (IT) equipment and software 3 - 5 years
Office machines 5 - 10 years
Furniture and fixtures 5 - 10 years
Motor vehicles 3 - 9 years
Other Assets
Other assets consist principally of machine repair parts and tools, which are used in the
production of the Bureau's products. Other assets are stated at actual cost, net of a reserve for
obsolescence.
Employee Retirement Plans
Bureau employees participate in the contributory Civil Service Retirement System (CSRS) or
Federal Employees' Retirement System (FERS), to which the Bureau and employees make
contributions according to plan requirements. Consistent with reporting under multi-employer
pension plans, the Bureau does not report CSRS and FERS assets, accumulated plan benefits or
future liabilities, if any, applicable to its employees. This data is reported for plan participants
by the Office of Personnel Management (OPM).
Postretirement Benefits Other than Pensions
Postretirement benefits for former Bureau employees, specifically health care costs and life
insurance, are administered and paid by OPM through appropriations received from the U.S.
Government. The Bureau does not reimburse OPM for these payments. The Bureau's financial
statements do not include the cost of employee postretirement benefits paid by OPM, or the
actuarial liability for such benefits.
Workers' Compensation Costs
The Federal Employee Compensation Act (FECA) provides income and medical cost protection
to covered Federal civilian employees injured on the job, employees who have incurred a work-
related occupational disease and beneficiaries of employees whose death is attributable to a job-
related injury or occupational disease. Claims incurred for benefits for the Bureau's employees
under FECA are administered by DOL and are ultimately paid by the Bureau.
The FECA liability consists of two components. The first component, the accrued FECA
liability, is based on actual claims paid by DOL but not reimbursed by the Bureau. The Bureau
(continued)
2008 CFO Report
41
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Notes to the Financial Statements
September 30, 2008 and 2007
reimburses DOL for the amount of actual claims normally within one to two years after payment
is made by DOL. As a result, the Bureau recognizes a current and non-current liability for actual
claims paid by DOL, to be reimbursed by the Bureau.
The second component, the actuarial FECA liability, is the estimated liability for future benefit
payments. These future workers' compensation estimates were generated from an application of
actuarial procedures developed to estimate the liability for future FECA benefits. The actuarial
liability for future worker's compensation benefits includes the expected liability for death,
disability, medical and miscellaneous costs for approved compensation cases, plus a component
for incurred but not reported claims. The liability is determined using a method that utilizes
historical benefit payment patterns related to a specific incurred period to predict the ultimate
payments related to that period. These annual benefit payments have been discounted to present
value using the Office of Management and Budget's (OMB) economic assumptions for 10-year
Treasury notes and bonds, which resulted in a discount rate of 4.37% in year one and 4.77%
thereafter. Based on information provided by DOL, the Department of the Treasury allocated
the overall liability to Treasury components based on past claims paid.
Annual, Sick and Other Leave
Annual leave is accrued as a liability when earned and the accrual is reduced as leave is taken.
The balance in this accrued liability account reflects current pay rates.
Sick leave and other types of non-vested leave are expensed as the leave is taken.
Revenue Recognition
Revenue from sales to the Federal Reserve System is recognized when finished goods
satisfactorily pass all Bureau quality control standards and are delivered to the on-site Federal
Reserve Depository vaults. Finished goods are released for shipment in accordance with
customer requirements. Revenue from the sale of uncut currency to the public is recognized at
the time the product is shipped. The Bureau does not record an allowance for returns because of
a historically negligible return rate.
Research and Development Costs and Advertising Costs
Research and development costs and advertising costs are expensed as incurred. Advertising
costs, which are reported in cost of goods sold, amounted to $8.4 million and $3.4 million in the
years ended September 30, 2008 and 2007, respectively.
(continued)
2008 CFO Report
42
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Notes to the Financial Statements
September 30, 2008 and 2007
Tax Status
The Bureau is a Federal entity, and therefore is not subject to Federal, state, or local income
taxes. Accordingly, no provision for income taxes is required in the accompanying financial
statements.
Contingencies
Liabilities from loss contingencies, including environmental remediation costs not within the
scope of FASB Statement No. 143, Accounting for Asset Retirement Obligations, arising from
claims, assessments, litigation, fines and penalties, and other sources, are recorded when it is
probable that a liability has been incurred and the amount of the assessment and/or remediation
cost can be reasonably estimated. Loss contingencies that do not meet these criteria, but are
reasonably possible and estimable are not accrued, but are disclosed in Note 12.
[Chart]
3. Cash
The year-end cash balances by fund are as follows as of September 30, 2008 and 2007:
2008 2007
-------- --------
(In Thousands)
Bureau of Engraving and Printing Revolving Fund $152,766 $175,154
Mutilated Currency Revolving Fund 745 826
-------- --------
Total $153,511 $175,980
-------- --------
The balance in the mutilated currency revolving fund, consisting of processed claims for
mutilated currency submitted by the public for redemption, is offset by a liability to the public.
[Chart]
4. Inventories, net
Inventories consist of the following as of September 30, 2008 and 2007:
2008 2007
-------- --------
(In Thousands)
Raw material and supplies $ 40,517 $ 48,864
Work-in-process 36,619 35,977
Finished goods - currency 3,232 4,504
Finished goods - uncut currency 23,599 17,757
-------- --------
Total $103,967 $107,102
======== ========
(continued)
2008 CFO Report
43
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Notes to the Financial Statements
September 30, 2008 and 2007
The allowance for inventory obsolescence was $665 thousand and $560 thousand, at
September 30, 2008 and 2007, respectively.
[Chart]
5. Property and Equipment, net
Property and equipment consist of the following as of September 30, 2008 and 2007:
2008 2007
-------- --------
(In Thousands)
Machinery and equipment $434,795 $393,846
Building and land improvements 236,040 229,734
IT equipment and software 22,060 20,467
Office machines 1,103 1,103
Furniture and fixtures 1,140 1,140
Donated assets - art work 125 125
Motor vehicle 212 212
-------- --------
695,475 646,627
Less accumulated depreciation 455,184 443,670
-------- --------
240,291 202,957
Construction-in-progress 41,585 53,099
-------- --------
Net property and equipment $281,876 $256,056
-------- --------
Depreciation expense for the years ended September 30, 2008 and 2007 was $28.6 million and
$32.0 million, respectively.
The Bureau occupies and uses buildings and land owned by the Department of the Treasury.
The land and building shell for the Fort Worth, Texas facility were donated by the City of Fort
Worth to the Department of the Treasury in 1987, which holds the title thereto. At the time of
donation, the land had an appraised value of $1.5 million and the building shell cost was $5.6
million. In accordance with the provisions of Public Law 81-656, Bureau financial statements
include only the costs to build out the facility.
6. Other Assets, net
Other assets consist principally of machine repair parts and tools. The allowance for
obsolescence for these parts and tools for the years ended September 30, 2008 and 2007 was
$5.7 million and $4.9 million, respectively.
(continued)
2008 CFO Report
44
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Notes to the Financial Statements
September 30, 2008 and 2007
[Chart]
7. Current Liabilities
All current liabilities are funded and consist of the following as of September 30, 2008 and
2007:
2008 2007
-------- --------
(In Thousands)
Intragovernmental $ 10,952 $ 5,344
With the public 37,469 41,075
-------- --------
Total $ 48,421 $ 46,419
-------- --------
[Chart]
Accrued current liabilities consist of the following as of September 30, 2008 and 2007:
2008 2007
-------- --------
(In Thousands)
Payroll $ 11,128 $ 13,758
Annual leave 10,775 9,994
Workers' compensation 4,874 4,220
Other 1,808 1,317
-------- --------
Total $ 28,585 $ 29,289
======== ========
8. Workers' Compensation Liability
Claims incurred and paid by DOL as of September 30, 2008 and 2007, but not yet reimbursed to
DOL by the Bureau, are approximately $11.7 million and $10.7 million, of which approximately
$4.9 million and $4.2 million represents a current liability, as of September 30, 2008 and 2007,
respectively. The Bureau will reimburse DOL for these claims in the next two years. The
Bureau's estimated non-current, actuarially-derived future workers' compensation liability was
approximately $54.6 million and $50.9 million as of September 30, 2008 and 2007, respectively.
9. Employee Retirement Plans and Postretirement Benefits Other than Pensions
Employer contributions to the retirement plans were $16.1 million and 15.9 million for 2008 and
2007, respectively. The CSRS employer contribution rate for fiscal years 2008 and 2007 was
7.0%. The FERS agency contribution rate for fiscal years 2008 and 2007 was 11.2%. The cost
of providing the CSRS and FERS benefits is more than the amounts contributed by the Bureau
and the employees to OPM. The additional cost of providing benefits, including the cost
financed by OPM, which is not included in the Bureau's Statements of Operations, totaled $23.1
million in 2008 and 2007.
OPM paid costs totaling $10.3 million and $11.4 million for the Federal Employees Health
Benefits Program (FEHBP) and Federal Employees Group Life Insurance (FEGLI) programs in
(continued)
2008 CFO Report
45
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Notes to the Financial Statements
September 30, 2008 and 2007
2008 and 2007, respectively. These costs are not included in the Bureau's Statements of
Operations.
10. Related Party Transactions and Concentration of Revenue
The Bureau's principal customers are other Federal and quasi-Federal governmental
organizations. During 2008 and 2007, the Bureau's sales revenue from these organizations as
well as the outstanding amounts due from them as of September 30, 2008 and 2007, are reflected
in the following table:
[Chart]
Revenue for the year ended Sept. 30 Accounts Receivable as of September 30
2008 2007 2008 2007
-------- -------- -------- --------
Federal Reserve System: (In Thousands) (In Thousands)
---Currency Production $492,343 $553,764 $ 45,219 $ 37,449
---Mutilated Currency 3,757 3,948 942 974
Other Federal Agencies 7,841 5,362 391 711
-------- -------- -------- --------
503,941 563,074 46,552 39,134
-------- -------- -------- --------
Public sales 12,669 15,037 — —
-------- -------- -------- --------
Total $516,610 $578,111 $ 46,552 $ 39,134
Revenues from other Federal agencies are derived principally from the sale of security printing
products to U.S. Government agencies and related fees charged.
11. Principal Suppliers
The Bureau is dependent upon sole suppliers for distinctive currency paper, and several
advanced counterfeit deterrent materials.
12. Commitments and Contingencies
The Bureau is a party in various administrative proceedings, legal actions, and claims brought
against the Federal Government by employees, contractors, and other parties. Contingencies for
litigations involving the Bureau, where the risk of loss was probable, were approximately $800
thousand and $402 thousand as of September 30, 2008 and 2007, respectively, and have been
accrued in the accompanying financial statements. Contingencies, where the risk of loss was
reasonably possible, were approximately $4.5 million and $3.4 million as of September 30, 2008
and 2007, respectively. Since the risk of loss for these litigations was not probable, the Bureau
did not record any liability. Management believes that the ultimate resolution of these litigations
will not have a material impact on the reported financial position, results of operations, and cash
flows.
(continued)
2008 CFO Report
46
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Notes to the Financial Statements
September 30, 2008 and 2007
The American Council of the Blind and others have filed suit against the Department of the
Treasury under Section 504 of the Rehabilitation Act seeking the redesign of U.S. currency. In
2007, a judge ruled that the current U.S. currency design violates this Act and this ruling was
appealed. In 2008, the United States Court of Appeals for the District of Columbia Circuit
affirmed this ruling. No monetary damages were awarded by the Court. However, the Bureau is
required to provide meaningful access to United States currency for blind and other visually
impaired persons. This may require changes to U.S. currency (excluding the one-dollar note).
The Court ordered such changes shall be completed, in connection with each denomination of
currency, not later than the date when a redesign is next approved by the Secretary of the
Treasury. Because the cost of these changes will be incorporated into future currency redesign
costs, no costs have been accrued in the accompanying financial statements as of September 30,
2008 and 2007.
The United States Court of Appeals, in the above mentioned case, also ordered that the Bureau
of Engraving and Printing pay the American Council of the Blind and others for attorney's fees
and costs. Such fees and costs are estimated to be $800,000. As noted above, this amount has
been accrued and is included in other accrued liabilities.
Judgments resulting from litigation against the Bureau are paid by the Department of the
Treasury Judgment Fund. The Bureau is required to reimburse the Judgment Fund for paid
claims related to employee discrimination and contract disputes. There were no amounts due to
the Judgment Fund as of September 30, 2008 and 2007.
The Bureau has contracted to purchase over-printing presses, incorporating automated inspection
and packaging capability, costing approximately $49.0 million of which $3.5 million and $6.9
million was paid in 2008 and 2007, respectively. The Bureau has also contracted to purchase
intaglio printing presses, costing approximately $55.8 million, of which $13.4 million and $12.2
million was paid in 2008 and 2007, respectively. Delivery of the presses will be determined
upon successful completion of final factory inspection tests.
The Bureau does not carry commercial insurance on its physical assets because by law the
Federal Government is self-insured.
(continued)
2008 CFO Report
47
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
Notes to the Financial Statements
September 30, 2008 and 2007
13. Operating Lease
In 2002, the Bureau entered into a cancelable operating lease for warehouse space that expires in
2012. The lease contains a renewal option for 10 years.
Rental expense for the years ended September 30, 2008 and 2007 was $1.8 million and $1.3
million, respectively.
Future minimum payments under the lease as of September 30, 2008, are (in thousands):
For the years ending September 30:
[Chart]
2009 $1,826
2010 1,838
2011 1,850
2012 935
------------------
Total $6,449
==================
2008 CFO Report
48
THE DEPARTMENT OF THE TREASURY
BUREAU OF ENGRAVING AND PRINTING
WASHINGTON, D.C. 20228
Managements's Report on Internal Control Over Financial Reporting
We as management of the Bureau of Engraving and Printing (Bureau) are responsible for establishing and
maintaining adequate internal control over financial reporting and for our assertion on the effectiveness of
internal control over financial reporting. The Bureau's internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles.
The Bureaus's internal control over financial reporting includes those policies and procedures that:
* pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of the assets of the Bureau;
* provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Bureau are being made in accordance with authorizations of management of the Bureau; and
* provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Bureau's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that internal controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of the Bureau's internal control over financial reporting as of
September 30, 2008. In making this assessment, the Bureau used the criteria established in the Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Based on our assessment and those criteria, we conclude that the Bureau maintained effective internal
control over financial reporting as of September 30, 2008.
KPMG LLP, an independent public accounting firm, has issued their reports, included herein, on (1) our
financial statements; (2) our compliance with certain provisions of laws, regulations, and contracts and
other matters; and (3) our assertion on the effectiveness of internal control over financial reporting.
Larry R. Felix
Director
Leonard R. Olijar
Chief Financial Officer
October 28, 2008
Washington, DC
2008 CFO Report
49
[KPMG logo]
KPMG LLP
2001 M Street, NW
Washington, DC 20036
Independent Auditors' Report on Internal Control Over Financial Reporting
To the Inspector General, Department of the Treasury, and
The Director of the Bureau of Engraving and Printing, Department of the Treasury:
We have examined management's assertion, included in the accompanying "Management's Report on
Internal Control Over Financial Reporting," that the Bureau of Engraving and Printing (Bureau)
maintained effective internal control over financial reporting as of September 30, 2008, based on the
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission. The Bureau's management is responsible for
maintaining effective internal control over financial reporting and for its assertion on the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on management's
assertion based on our examination.
Our examination was conducted in accordance with attestation standards established by the American
Institute of Certified Public Accountants and the standards applicable to attestation engagements contained
in Government Auditing Standards, issued by the Comptroller General of the United States and,
accordingly, included obtaining an understanding of internal control over financial reporting, testing, and
evaluating the design and operating effectiveness of internal control, and performing such other procedures
as we considered necessary in the circumstances. We believe that our examination provides a reasonable
basis for our opinion.
Because of inherent limitations in any internal control, misstatements due to errors or fraud may occur and
not be detected. Also, projections of any evaluation of internal control over financial reporting to future
periods are subject to the risk that the internal control may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assertion that the Bureau maintained effective internal control over financial
reporting as of September 30, 2008 is fairly stated, in all material respects, based on the criteria established
in Internal Control – Integrated Framework issued by COSO.
KPMG LLP
October 28, 2008
KPMG LLP, a U.S. limited liability partnership, is the U.S.
member firm of KPMG International, a Swiss cooperative.
2008 CFO Report
50
[KPMG logo]
KPMG LLP
2001 M Street, NW
Washington, DC 20036
Independent Auditors' Report on Compliance and Other Matters
The Inspector General, Department of the Treasury and
The Director of the Bureau of Engraving and Printing, Department of the Treasury:
We have audited the balance sheets of the Bureau of Engraving and Printing (Bureau) as of September 30,
2008 and 2007, and the related statements of operations and cumulative results of operations and cash
flows (hereinafter referred to as "financial statements") for the years then ended and have issued our report
thereon dated October 28, 2008.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America; the standards applicable to financial audits contained in Government Auditing Standards, issued
by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin
No. 07-04, Audit Requirements for Federal Financial Statements. Those standards and OMB Bulletin No.
07-04 require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
The management of the Bureau is responsible for complying with laws, regulations, and contracts
applicable to the Bureau. As part of obtaining reasonable assurance about whether the Bureau's financial
statements are free of material misstatement, we performed tests of the Bureau's compliance with certain
provisions of laws, regulations, and contracts, noncompliance with which could have a direct and material
effect on the determination of the financial statement amounts, and certain provisions of other laws and
regulations specified in OMB Bulletin No. 07-04. We limited our tests of compliance to the provisions
described in the preceding sentence, and we did not test compliance with all laws, regulations, and
contracts applicable to the Bureau. However, providing an opinion on compliance with those provisions
was not an objective of our audit, and accordingly, we do not express such an opinion.
The results of our tests of compliance described in the preceding paragraph, disclosed no instances of
noncompliance or other matters that are required to be reported herein under Government Auditing
Standards or OMB Bulletin No. 07-04.
This report is intended solely for the information and use of the Bureau's management, the Department of
the Treasury's Office of Inspector General, OMB, the U.S. Government Accountability Office, and the
U.S. Congress and is not intended to be and should not be used by anyone other than these specified
parties.
KPMG LLP
October 28, 2008
KPMG LLP, a U.S. limited liability partnership, is the U.S.
member firm of KPMG International, a Swiss cooperative.